We have set out below the most recent regulatory updates on digital assets and blockchain technology in each of the three jurisdictions that Appleby’s Hong Kong office advises on.
The Companies and Limited Liability Company (Initial Coin Offering) Amendment Act 2018
The ICO Act has received royal assent and will become operative upon a public notice being published in the official Gazette.
Under the ICO legislation, an initial coin offering (ICO) will be treated as a restricted business activity which will require consent from the Minister of Finance. For these purposes, an ICO means an offer by a company or limited liability company (LLCs) to the public to purchase or otherwise acquire digital assets. The ICO Act does not seek to regulate those who are concerned solely with private sales or whose ordinary business involves the acquisition, disposal or holding of digital assets.
Once consent is received a company or LLC must publish an ICO offer document in electronic form that includes certain disclosures and information. Subject to specific statutory exemptions (including but not limited to whether the digital assets are listed on an appointed stock exchange or appointed digital asset exchange), a company or LLC is required to file such document with the Bermuda Registrar of Companies.
The issuer will also be required to collect, verify and maintain customer identity information from an anti-money laundering (AML) perspective.
The Digital Asset Business Act 2018 (DABA)
The DABA has received royal assent and will become operative upon a public notice being published in the official Gazette.
DABA is the second significant legislative initiative designed to facilitate the growth of FinTech in Bermuda and will introduce a supervisory framework for the Bermuda Monetary Authority to regulate persons carrying on a digital asset business.
DABA was derived through consideration of the recommendations set out in the Financial Action Task Force, the Organisation for Economic Co-operation and Development and the G20.
Licensing under DABA is achieved by either obtaining a full digital asset licence (a “class F licence”) or a sandbox licence (a “class M licence”), with a sandbox licence geared towards start-ups looking to test a product for a specified period of time.
Most of the provisions under DABA have been based on Bermuda’s existing familiar and robust regulatory framework in the insurance, funds and trust sectors. It includes provisions concerning risk management and compliance, internal audit and empowers the Bermuda Monetary Authority to issue a code of practice that companies are required to comply with.
Over the last 18 months, the Cayman Islands has become a popular destination for the generation and sale of digital assets. Whilst no specific legislation has so far been passed in the Cayman Islands to govern such sales, other laws, such as the Securities Investment Business Law, may apply to such offerings. The extent to which other laws may apply is a fact-specific enquiry dependent on the unique functionalities exhibited by each token. Companies looking to launch their tokens from the Islands should therefore continue to seek advice from Cayman counsel to ensure compliance with Cayman’s existing legal framework.
Cayman has also established a Special Economic Zone allowing technology companies to benefit from specific advantages such as zero taxes, an offshore presence and fast-tracked work permit applications for relocating employees. Cayman’s wider ambition to become a global fintech leader is also supported by a sound legal framework, modern infrastructure, state of the art communication systems and a stable political climate.
British Virgin Islands
Most BVI ICOs are structured through an ICO issuer incorporated as a BVI business company under the BVI Business Companies Act, 2004 (the BCA). At present, neither the BVI government nor the BVI’s financial services regulator, the BVI Financial Services Commission (FSC), have issued any regulatory guidance on FinTech, ICOs or blockchain, as the regulatory framework applicable to the industry is still in its early stages of development. We understand that the FSC and the BVI government are in the process of reviewing legislative and regulatory changes and it is expected that over the coming months and years there will be legal and regulatory developments to assist with the growth of the FinTech, blockchain and ICO industry in the BVI.
It can be seen from the above updates that whilst legislative and regulatory developments relating to the FinTech, blockchain and ICO industry have progressed differently in the three key offshore jurisdictions, there is no doubt that all of the jurisdictions are embracing the opportunities brought about by this latest global trend and are actively considering and devising suitable products and strategies to attract businesses.
With technological innovation transforming offshore businesses and markets, Appleby has led the way amongst the offshore firms by launching a dedicated Global Technology and Innovation Group. With experts across its network of 10 offices around the world, the group supports clients across a broad range of emerging technologies.